CBRE: Revised NAFTA Should Benefit U.S. Commercial Real Estate

The North American Free Trade Agreement's likely replacement, the United States-Mexico-Canada Agreement, should increase U.S. commercial property market demand by decreasing uncertainty about trade, said CBRE, Los Angeles.

The current NAFTA agreement facilitates more than $1.2 trillion of trade among the U.S., Mexico and Canada. Assuming the USMCA is ratified by all three countries, the new USMCA trade deal will likely take effect in or near 2020, CBRE said.

"Although exact effects of the new trade deal remain to be seen, it appears that the USMCA will generally support property market demand," said the CBRE special report, Revised NAFTA Should Benefit U.S. Real Estate. "Measurable impacts will be determined as automakers, retailers and distributors calibrate operations to align their businesses with the agreement's provisions and move forward with capital investments."

CBRE said industrial real estate is positioned to benefit most from the new trade agreement. "Since its inception, NAFTA has generated significant capital investment in U.S. industrial real estate, especially along logistics/supply chain corridors," the report said, noting warehouse inventory has increased by 3.3 billion square feet since 1994 when NAFTA came into force. "Since NAFTA took effect, complex supply chains have been established with parts often moving back and forth across borders and value added several times before being completed. Under the new agreement, this interconnectedness will be preserved in various ways."

U.S. automakers will benefit from a USMCA provision that mandates a higher percentage of North American-sourced materials in cars, CBRE said. "Consequently, some real estate markets may see near-term demand bolstered as supply chains are adjusted and more parts are sourced from North America to meet new requirements," the report said. "Additionally, greater access for agricultural products and higher minimums for duty-free shipments will support warehouse distribution demand."

Though the extent will be considerably less, U.S. office markets could also benefit from the new trade agreement's stronger intellectual property protections, provisions addressing the service sector and special protections for pharmaceuticals, CBRE said.

One potential downside the report noted: continuing steel and aluminum tariffs on Canada and Mexico could increase real estate construction costs in the U.S.